豐田汽車 (TM) 2022 Q4 法說會逐字稿

[Interpreted] Thank you very much for joining us today despite your occupied schedule. We would like to start the Toyota Motor Corporation's financial results announcement for the period ending in March 2022. First of all, let me introduce to you the members present for this briefing. Executive Vice President, Chief Financial Officer, Kenta Kon; Executive Vice President, Chief Technology Officer, Masahiko Maeda; Chief Communication Officer, Jun Nagata; and Accounting Group Chief Officer, Masahiro Yamamoto. Now ladies and gentlemen, first of all, Yamamoto will share with you the overview of the financial results.

[Interpreted] Hello, everyone. Thank you for joining us today. I am Masahiro Yamamoto. We express our heart filled appreciation to our customers around the world who chose us as well as our shareholders, dealers and suppliers who support us. We would like to express our sincerest gratitude to all the stakeholders. I sincerely apologize for the inconvenience caused to our customers due to the recent production volume reductions. We will work hard to deliver our product as soon as possible.

First, let me explain the summary of our performances for the fiscal year ended March 2022. Under the production constraint due to the spread of COVID-19 and semiconductor shortages, dealers, suppliers and production sites have all worked tirelessly in order to deliver as many cars as possible to customers despite soaring materials prices and increase in expenses for the investment in new business fields.

We achieved growth in revenue and profits, thanks to cost reduction and marketing efforts. This is attributable to the improvement of our revenue structure, which we have been working on for a long time towards one that is not dependent on foreign exchange rate and volumes.

As for the forecast, we have set our production volume assumption to an appropriate level, having safety and security as our top priority. We expect a decrease in our operating income due to precedented increases in materials and logistics costs. However, we'll continue with our future investments and promote our various activities. As for the shareholder returns, the year-end dividend is JPY 25 per share (sic) [JPY 28 per share] and maintain a steady increase. Share purchases will be up to JPY 200 billion, including JPY 100 billion set aside to enable more flexible share repurchases than before while considering share price levels.

Let me explain our performance for the fiscal year ended March 2022 consolidated vehicles sales after the period -- for the period was 8.23 million units, which was 107.6% of the consolidated vehicle sales for the same period of the previous fiscal year. Toyota and Lexus brand vehicle sales was 9.512 million units, 104.7% of the same sales of the same period of the previous year. The ratio of electrified vehicles was 28.4%. The consolidated financial results for this fiscal year were: sales revenue JPY 31.3795 trillion, operating income JPY 2.9956 trillion; income before income taxes, JPY 3.9905 trillion and net income of JPY 2.8501 trillion.

I would like to explain the factors that impacted operating income year-on-year. First, the effects of foreign exchange rates increased operating income by JPY 610 billion. Second, cost reduction efforts decreased operating income by a net of JPY 360 billion. This consisted of JPY 280 billion increase due to cost reduction efforts and JPY 640 billion decrease due to the impact of soaring material prices. Third, marketing efforts increased operating income by JPY 860 billion, largely due to the increase in sales volume and improved earnings in the Financial Services business.

Finally, an increase in expenses decreased operating income by JPY 220 billion. As a result, excluding the overall impact of foreign exchange rates and stock valuation gains and losses and other factors, operating income increased by JPY 280 billion year-on-year. As shown here, the operating income for each region increased year-on-year in all regions. This is largely due to the impact of foreign exchange rates, cost reduction and marketing efforts. Next, let me explain your business in China as well as the Financial Services business. As for our business in China, both the operating income of consolidated subsidiaries as well as our share of profit of equity method affiliates increased mainly due to the impact of foreign exchange and marketing efforts.

Regarding the Financial Services business, operating income, excluding stock valuation gains and losses for the fiscal year increased year-on-year, largely due to the increase in the lending balance and margins. Next, let me explain the return to shareholders. We plan to make a year-end dividend of JPY 28 per share. We'll continue to aim to pay stable and sustainable dividends while maintaining and improving upon our consolidated dividend pay-out ratio in the medium to long term in order to reward shareholders who hold their shares over the medium to long term.

As for share repurchases, we set the maximum limit to JPY 200 billion, including JPY 100 billion set aside to enable more flexible share repurchase than before while considering share price levels. Aiming at enhancing capital efficiency, we plan to implement share repurchases in a flexible manner taking into account various factors including investment in growth, dividend levels, (inaudible) and share price levels.

Next, I will explain the forecast for the fiscal year ending March 31, 2023. Consolidated vehicle sales is expected to be [8.850 million] units, which is 107.5% of the previous fiscal year in sales expected in all regions. As for Toyota and Lexus brand vehicle sales, it is expected to be [9.900 million] units, which is 104.1% of the previous fiscal year.

As for electrified vehicles by improving our product lineup to better meet customers' needs in each region. Sales are expected to be [3.070 million] units, which is 113.6% of the previous fiscal year. We expect that the ratio of electrified vehicles will amount to 31.0% of vehicles sold. Towards carbon neutrality, we will continue to make efforts to provide a wide range of options to meet the needs of each region, and hence be selected by customers in those regions.

Next, let me explain the forecast for the full year consolidated financial performance. We have adopted ForEX rate assumptions of JPY 115 per U.S. dollar and JPY 130 per euro. Based on this, our forecast for the full year consolidated financial performance, our sales revenues JPY 33 trillion; operating income JPY 2.400 trillion; income before income taxes, JPY 3.130 trillion; and net income of JPY 2.260 trillion.

Next, I would like to explain the factors that impacted operating income. First, the effect of foreign exchange rates are expected to increase operating income by JPY 195 billion. Second, cost reduction efforts are expected to increase profits by JPY 300 billion. While the impact of a sharp increase in materials cost is expected to be JPY 1.450 trillion, resulting in a total decrease of JPY 1.150 trillion.

Marketing efforts are expected to increase operating income by JPY 850 billion, largely due to the increase in sales volume. Finally, an increase in expenses is expected to decrease operating income by JPY 440 billion. Although we continue to face difficult business environment, we will continue to further improve our profit structure and accelerate our efforts to transform into future mobility society.

This concludes my presentation on the financial results.

[Interpreted] Next EVP, Kenta Kon, will talk about changes in profit structure.

[Interpreted] I'm Kenta Kon. Although the results for the fiscal year ended March 31, 2022, are for a single fiscal year, they represent accumulation of improvement so far in our profit structure. So I would like to add a few words from that perspective. These graphs compare the change in our operating income in the year of the 2009 global financial crisis and the COVID-19 last year, in each case compared to the previous year.

In both cases, sales volume decreased by 15% compared to the previous year. But at the same time -- but at the time of the global financial crisis, profits decreased significantly pushing Toyota into the red, while in the fiscal year ended March 2021, we were able to secure a profit.

This shows a breakeven volume for the fiscal year ended March 31, 2009 onward. If you assign our breakeven volume at the time of the global financial crisis, the value of 100, we have lowered our breakeven volume most recently to the 60 to 70 range, demonstrating that we have made significant progress in improving our condition over the past 13 years. This is not something that could be done overnight. Immediately after the global financial crisis, we had to put the brakes on all of our R&D expenditures and capital investments. We could not do any investments in the future.

But while overcoming the numerous crisis known as the Six Hardships, such as our quality crisis, we continuously work to improve our profitability. Improved profitability was not something that Toyota was able to achieve on its own, rather it was the result of a desperate and quantitated effort with all of our stakeholders. To them, we say thank you.

During that period, as one of Toyota's strength is having a full lineup of products globally, we shifted to an in-house company system that would allow us to provide high quality and reasonably priced vehicles at the right place in time to an even higher degree.

Along with the in-house company system, we introduced our the global architecture or TNGA, a shared vehicle platform to improve the basic performance and product appeal of our vehicles, and enhance the reflection of regional characteristics with the aim of not being the best in the world, but the best in town. In the past, we often introduced completely new vehicle models on a one-off basis as the market grew.

But now we are continuously evolving our long joint best-selling cars such as the Yaris and Corolla, to keep them current so that they can go on being long-time best sellers. We believe that this has resulted in our being able to increase profitability.

I would like to explain the changes in our profit structure over the past 6 years since we transitioned to our in-house company system. looking at the factors behind increases and decreases in operating income, our profit has increased despite major negative factors such as foreign exchange rates, sales volume and increases in materials prices. In terms of sales, our greater than JPY 2 trillion improvement in profit is due to sales price [reductions] and a reduction in selling expenses. We believe that this is a result of our customers highly evaluating our products.

Also, both sales vehicle quality helped customers maintain high vehicle value, leading to improved profitability, not only in the automotive business, but also in the financial services business.

In terms of cost improvements we believe that significant improvements have been achieved by the effect of switching to new products that are based on the TNGA platform, and through the power of our production work sites including those of suppliers, which can be (inaudible) to the launch of various new products and environmental changes as well as produce high-quality product. We used to increase profit through foreign exchange rates and volume growth, but this has certainly changed over the past 6 years.

Comparing 2015 and 2021, we have increased our market share for new car sales in 11 of the 15 major countries, including China, the United States and Japan. The graph on the right shows the by-model used car prices in the U.S. 3 years after purchase. Our RAV4 has received higher appraisal than vehicles by other manufacturers in the same segment, and it is evident that those appraisals have gotten even higher since we switched to the TNGA-based RAV4. Being able to command a high price in the used car market, protects the value of consumers' owned assets, and we believe this is building trust in our brand.

Our in-house company system best in town activities in each region, TNGA, product lineup strategies, the creation of ever-better motorsports-bred cars, and the human resource development that supports these activities as well as various in-house system reforms.

As mentioned, although our performance in the fiscal year just ended, represents a situation for single fiscal year, it is the result of efforts that have been ongoing for a long time. And we would like to once again like to thank everyone involved for their support. Many customers are currently waiting for a long time for delivery of their vehicles. We would like to take this opportunity to apologize again. This concludes my explanation. Thank you.

[Interpreted] From here on, we would like to open the floor for discussion Q&A. (Operator Instructions) Please ask a maximum of 2 questions, no more than 2 questions. Mr. [Fukuhi] of an Automotive Journal -- Daily Journal. We'll switch the screen and once you see yourself on the screen, please start your question. So, Mr. Fukuhi please.

[Interpreted] [Fukuhi] of an Automotive Daily Journal. Can you hear me?

[Interpreted] Mr. [Fukuhi] your voice is quite low. Could you once again repeat yourself?

[Interpreted] Can you hear me?

[Interpreted] Yes, we can.

[Interpreted] First of all, with respect to the assessment of the financial results of the fiscal year just ended. The sales revenue is JPY 31 trillion, and the operating income is around JPY 3 trillion, both are record high levels. And with respect to those good financial results, how do you assess that? What is your view of that?

The second question is as follows. Due to the soaring raw materials prices and cost improvement efforts, according to the information published in the period -- fiscal year ended the soaring raw materials prices were JPY 640 billion and for the current year it's already JPY 1.55 trillion. Mr. Kon has been talking about JPY 300 billion to improve operating income through cost improvement efforts.

But I think the soaring raw materials prices is so high that cannot be covered by the further cost reduction. Is there any further room for cost reduction? And including Tesla, overseas manufacturers are increasing their prices. What is your approach to passing on higher raw materials cost to the final persons?

[Interpreted] Thank you, Mr. [Fukuhi]. With respect to the good results or financial results of the fiscal year ending in March '22, that will be explained by Mr. Kon, EVP. The assessment of that and for the fiscal year just ended as the raw materials prices soared, what are we going to do with the cost improvement efforts. Mr. Yamamoto will respond to that. And with respect to pricing, I, Nagata, will respond to that aspect of question. So first, may I ask Mr. Kon to respond to the first aspect.

[Interpreted] Thank you, Mr. [Fukuhi] for your question. With respect to our assessment of the fiscal year just ended, earlier I made additional comments in the presentation and as reflected there in the fiscal year just ended in March 2022 in terms of the financial results for the full year of that. But up until that particular moment over 13 years altogether, we made accumulated efforts, which brought down the breakeven units, and that reduced the break-even units. And that is the major driver of this financial results.

This is the financial results achieved in a single year. So if you just one year over many years that we continue to make efforts. So it depends on the economic conditions prevailing any fiscal year is reflected in those numbers, but on the foundation and basis of that is the -- not just the initiatives and activities pursued in that particular fiscal year, but the accumulated efforts for improving profit structure pursued over many years.

So in that sense, the fact that we've been able to make this financial results could indicate that good results of our efforts to improve our operating structure is reflected and manifested in that. As I said, the financial results reflect the efforts of a single year.

But in terms of a production Gemba, everyday, they are engaged in production activities, which produce a certain number of units. Sometimes the line is stopped, at other times, efficiency might suffer. So in that sense, the books are closed every single day. So every effort is made to achieve a better results tomorrow than yesterday, and maybe even better results after that. And those efforts pursued over 13 years or so is reflected in the financial results.

We have suffered from the impact of raw materials or Omicron variant of COVID. But I think the most important factor and characteristics of this financial year was the continued and accumulated efforts over many years for improving operating structure. That's my assessment of the financial results.

[Interpreted] Thank you. With respect to cost reduction efforts. If you can refer to Slide 16, maybe. Thank you. Yes. JPY 2.4 trillion. Aiming at that, this shows that the (inaudible), it shows negative JPY 1.45 billion that is the soaring materials, and JPY 300 billion achieved through the cost reduction efforts, and also from that subtraction of JPY 1.45 trillion of soaring raw materials [prices].

And therefore, to continue making efforts to achieve around JPY 300 billion in cost improvement efforts manifestation is something very difficult, but what we have been continuing to do, what we'll continue to be pursued going forward.

And when the raw material prices are very high and soared, what sort of materials shouldn't we be using is a new aspect that we will consider. So that might represent a certain perspective from which the cost improvement efforts can be continued. So every day, probably, we can find those seas for cost improvement.

[Interpreted] Lastly, with respect to the efforts to pass on higher costs or prices. And let me respond to that. Overall, within Toyota, one of the characteristics of material [guide] is to have the operational or lineup, both passenger cars and commercial vehicles on the global side level.

So we are operating globally on -- with the core lineup of products, and therefore, in each region, we have many different customers in different segments, and we are trying to satisfy those differing needs in a very fine-tuned manner every day. So from that perspective, the products are planned and pricing is made.

So there are a variety of customers -- different types of customers in that because of the soaring raw material prices, sometimes there may be a segment from whom we may be able to receive a higher consideration. But at the same time, there are other segments of customers who need and who use vehicles for as means of transportation as the work vehicle.

So from those customers, even if the raw materials prices soared and increased, trying to increase the prices charged to those customers would represent a very difficult thing to do. And as Kon mentioned earlier, for products we focus on regional differences and different product lines.

So in each region, for each lineup of products, where can we set higher prices, or where is it very difficult to change prices, those will be closely examined before a decision is made. And that is what we keep in mind, even in the current context.

And if I may further add, one of the characteristics of Toyota as an OEM, we have the Crown or the Corollas or Hiace, in the sense, there are so-called long-selling brands. And we have so many of those long-selling vehicles. And that's one of the characteristics of Toyota as an OEM. And those brands are really enjoying patronage of many customers (inaudible) to many segments.

And therefore, for customers with respect to product strength and the pricing, they have a certain level of market level they keep in mind. So we need to satisfy those expectations, meet those customers' expectations. And therefore, even if the inflation has set in, to increase price, we'll simply cannot satisfy those customer needs and expectations.

Including that aspect and as Mr. Yamamoto mentioned, we will continue to improve cost not on a single year basis but also over many years so that we can make customers' expectations as much as possible. That's our approach.

[Interpreted] Now let us move on to the next question. From Asahi, Kondo-san please. We will switch the screen. So when you see yourself on the screen, please start your question. Mr. Kondo, please.

[Interpreted] From Asahi Shimbun Newspaper, my name is Kondo. This question is related to the first question. The year-ended March 2022, the impact of raw material cost is much higher than the previous year. What is your perspective on the market conditions? And in the short term, the yen is weaker. So there may be impact of Forex. So can you tell us your view on that? And when we do our reporting, if you look at the supply chain -- with regards to supply chain assistant to support and distribution, what is your view? That is my first question.

And the second question in relation to global production, last year, initially 9.3 million was the plan. And after that, you viewed that plan. And ultimately, you had about 8.57 million. For this year 9.7 million, which is very high. There was a shorage of semiconductors, and yet 9.7 million is the number you have. Why do you have this number? And because of [price] shortage from China, some of your production sites in Japan is going to suspend production. So what is your perspective on the risk with related to the Chinese zero-COVID policy?

[Interpreted] Thank you very much. Your first question was about the soaring raw material prices? And second, how are we going to respond to our suppliers. That will be explained by Mr. Kon, the EVP.

And your second question, 9.7 million for this year production. What is the basis for this, was the question. Because of the Chinese supply chain, the production is going to be suspended, and you would like to have that included in our response. So Mr. Yamamoto will respond to that second question.

[Interpreted] Thank you very much to Mr. Kondo. First about the raw material price, and the market conditions. JPY 1.45 trillion, as you mentioned, it is unprecedented. So JPY 640 billion last year was the highest ever impact. And this year, it's more than twice that number. So the impact was very high.

With our suppliers, with regards to raw material prices, in principle, Toyota will bear the burden, that is the basic rule. And based on that, globally how much impact there will be taking into consideration the short-term market, and how much Toyota should bear the burden, that was calculated.

In the short term, the weaker yen may have a major impact you mentioned. But JPY 1.45 trillion, if you look at the breakdown, about half of that comes from global affiliates -- subsidiaries and affiliates, and the remainder comes from the Japanese business. In particular, with the weaker yen, that we don't think had a major impact on the results.

JPY 1.5 trillion, the impact of raw material prices, impacts both OEMs and suppliers. And so we have to work together to respond to the situation. And we have to think together and implement the necessary measures together. As Mr. Yamamoto mentioned, the raw material prices have gone up. So the amount of raw materials used should be -- reduced to the extent possible. And when possible, we should use lower cost of material. Those are measures that have to be taken.

Vehicle development and production and sales system of our company, and therefore, we have to develop more products that offer higher value to the customers rather than just simply raising the prices. We have to make further efforts as a company in product development. In a single year, JPY 1.45 trillion, that cannot totally absorbed in a single year.

So even if it may take time, we have to take solid steps and measures so that in several years' time, we will maintain or improve our competitiveness in the market. Cost reduction of JPY 300 billion per year, will have to be achieved through SSA activities, we have to make further efforts in these areas. So we have a sense of crisis. And we do realize that we have to continue these efforts. That's all from my side.

[Interpreted] The second point was about the production volume. Last year, against the plan, the production volume was lower and we repeated that several times. And each -- but still, we wanted to produce each vehicle with all our efforts and passion. The people at the Gemba will all work very hard, and I would like to thank everybody for those efforts. This year's plan, 9.7 million. And I think that was the point of your question.

In January, the 11 million was the unofficial plan that we announced, and that was changed to 9.7 million. Taking into consideration the situation last year, what is important is safety and quality, being productive, and continuing to produce each vehicle. We have to go back to those basics. With that thinking, we came at [this] 9.7 million. We don't know what will happen to this number in the future, but that is the approach for the next year.

COVID-19 impact and how much semiconductors can be procured this year have been taken into consideration. We asked the people on Gemba, sudden reduction in production means they have no work, and they may be switched to other works, and there may be a replacement of people -- people changes, and they have made or gone through a lot of struggles.

The plan -- if the plan can be conveyed to the people earlier? For example, by reducing the TAT time, the people on the Gemba can continue to work. And if they have some spare time, they can work on Kaizen activities. As Mr. Kon mentioned at the outset, a human resource like development we'll have to continue and the Gemba people have that a mentality to continue human resources development.

So that will continue to be kept in mind as we proceed with production activities.

[Interpreted] We would like to move on to the next question from [Chunichi] (inaudible).

[Interpreted] (inaudible) of [Chunichi] newspaper. Can you hear me?

Yes, we can.

[Interpreted] I have 2 questions as well. Question #1 relates to Hino Motor Corporation. And because of the misconduct with respect to exhaust gas that really lost and impaired the trust and confidence of consumers and also that really required improvement of our corporate culture and because of the stoppage of shipments, the financial well-being of the company is in question. So there are huge and [mounting] challenge over Hino. As a parent company, how TMC assesses and considers this Hino's problem.

And going forward, because of so many challenges facing Hino, the human resources growth and financial resources, what sort of assistance and support does Toyota intends to provide to Hino?

Second question, you talked about the product-driven management. And you also talked about the efforts for continuous improvement. I would like to ask about your future approach going forward? That's where the world has been based focused on internal combustion engines, but it is quite true that the increasingly vehicles will be battery EVs.

In the case of battery EVs, probably battery costs will be about 1/2 of the overall cost. But in the age of electrification that would result in different cost structure. How do you intend to keep your cost competitiveness or competitiveness of your products, overall? These are my 2 questions.

[Interpreted] Thank you, Mr. (inaudible). We received 2 questions. Question #1, related to Hino Motor relating to the misconduct of that. And as a parent company, how does Toyota respond to that. And Kon, that's the Vice President will respond to that question. Second question related to the product-driven management, which Kon talked about the in earlier presentation. In relation to that, in the electrification including the cost of battery EV, what will be the cost improvement difference and also how we'll address that. And Maeda EVP will respond to the second question. So Mr. Kon, please?

[Interpreted] Thank you, Mr. (inaudible) for your question. With respect to the first question, that relates to the Hino Motors. Hino is an consolidated subsidiary of TMC, and Hino Motors was engaged in the misconduct relating to the exhaust gas and also fuel consumption efficiency, then customers, the dealers, the suppliers who and also the regulatory authorities who all supported Hino to date received the tremendous inconvenience because of this.

And the confidence and trust they placed on Hino was completely lost. And as a parent company, I feel really sorry for that. It is indeed very regrettable what Hino did. Hino is an consolidated company engaged in the production and manufacturing of our commercial vehicles.

And in terms of the supervisory and oversight responsibility for Hino as a parent company, we intend to support Hino and its efforts to restore the confidence of those stakeholders. And as the parent company, we intend to work with Hino to restore such confidence that I think is a role to be played by a parent company.

Currently, the Special Investigation Committee composed of outside experts are now investigating the root cause of this problem, and we will pay attention to the outcome of that special committee. And bearing that in mind, in terms of the governance of Hino Motors, but not limiting to that, the reform of the corporate culture, the promotion of the business, including those aspects of Hino Motors, and placing the greatest priority on the efforts to restore confidence and trust of stakeholders and customers. So we really caused this inconvenience for which we are sincerely sorry for that. That's my response to the first question.

[Interpreted] Thank you, Mr. (inaudible) with respect to the second question, allow me to respond to that aspect. In the age of electrification, how Toyota is going to keep its competitiveness? That was the question. The competitiveness, what does that mean actually? As far as we are concerned, the fact that our customers choose our product is the indication of our customers. We think that it is a customer who has the final say on the product decision, whether we can derisk our product and being chosen by the customer is the key. And I think there are various different reasons and factors based upon which the choice of decision is made by customers.

As Nagata mentioned, some customers will focus on affordable but high-quality. But in other segments, customers might refer to value-added aspect, which enhance their lifestyle of the enjoy, and in certain areas where the usage is that made in the adverse natural environment, the durability may be the very important factor for the choice of vehicles.

So as Kon mentioned in his own presentation, we will continue with those activities as a part of our efforts to improve operating structure. We had in-house company system, through that we focused on what other business we are doing on the global scene, what sort of product lineup we have, and paying attention to those different in-house companies to focus on their own lineup and made efforts to respond to the customers of those different (inaudible).

In the past, we tend to focus on the value or margin, but rather some of those in-house companies compete against other in-house companies. So the ultimate efforts will be made to deliver ever-better cars to customers, the best vehicles to customers. And if we can share with you Slide #31, this shows one of the characteristics of Toyota. In the different regions of Toyota, where the regions in which Toyota is doing business. Toyota can be on the top.

So it's not that our business is biased in any specific region. We talked about full lineup operation globally. In many regions, the customers in those different regions throughout the world as a B2C company, we're allowed to business. So amongst many different regions, we do receive feedback from customers in different regions. And unless we operate through best-in-town company, we won't to be able to capture those feedback.

In the past, we tend to focus a certain areas such as services. But through those best-in-town companies, and every effort is made to receive feedback from customers. In-house company system is one effort of that and also focusing on being the best-in-town is that. So offer value customers even after the delivery of product and received feedback from customers.

And this looked the result of efforts to (inaudible) over the years to improve operating structure. And by doing so, we can develop human resources. So this effort to improve operating structure also includes as one aspect of the human resource development as well. And that results in enhanced competitiveness. And those efforts should be continued on the sustainable manner.

For the customers to choose Toyota on the sustainable manner, we need to continue with those efforts. There is no end of our efforts for operating structure improvement. Continuous pursuit will lead to the continued customers -- choosing customers -- chosen to by the customers. And added to that would be the strength of software going forward that will represent one new element.

So together with Woven Planet, we intend to increase our strength in this software aspect. The vehicles tend to be focused on hardware, but including software going forward, we intend to be more diversified in needs and desire of customers, and standing by the customers with different needs.

We intend to enhance our competitiveness because that leads to better products and improvement of our attractiveness. And I think only way is to simply make those efforts in a (inaudible) manner.

[Interpreted] Now let us move on to the next question from Yomiuri, Yamamoto-san please.

[Interpreted] My name is Yamamoto from Yomiuri Shimbun, the newspaper. The first question, the forecast for this year. In the United States and Europe, the inflation in China has the zero-COVID-19, and there is a concern of recession. This year, overseas sales is expected to be [$1.5 million]. So in this environment of recession, how do you see the market developing? Now domestic production, 3 million. That was in the forecast again. For TMC, 3 million in Japan, what does it mean to Toyota?

[Interpreted] Thank you very much to Mr. Yamamoto. The first question I want to clarify. This year, in March 2023 -- your question was about the overall market forecast?

[Interpreted] Yes.

[Interpreted]

Then I will answer that question. And the second question was about TMC's 3 million production in Japan. What does that mean for Toyota? I think that was your second question. And that would be answered by Mr. Yamamoto from Accounting Group.

Your first question was about the overall market conditions. This fiscal year, it's going to be even more difficult than other years to make a forecast. As Mr. Yamamoto mentioned, overall, globally, if there is any positive factor, China still has many restrictions with the zero-COVID-19 policy. But overall, recovery from COVID-19 is going to be a big positive factor.

And if you look at the negative factors, as we mentioned in our financial results announcement, the raw material prices are soaring, and inflation in various areas will have an impact on the daily lives of people. So there's inflation.

And then there is the Ukrainian factor. And that is causing a lot of concern in many areas. And next, a supply constraints of semiconductors and other parts will have -- will be a major limitation in the automobile industry. So these factors will be compounded this year.

And why region forecast is also very difficult. Let me give you a rough outline of what we are thinking now. China and the United States -- roughly speaking, in the year ending March 2022 -- compared to the year-end March 2022, we will see a slight improvement. And Japan and Asia, we have the positive and negative factors that I mentioned before. And if you add them together, it will be about plus/minus 0. So the market will be about the same as fiscal 2021. And the most difficult region to forecast, I think, is Europe.

Energy Materials, the Russian Ukraine issue will have a major impact, and that will have an impact on the economy in general. So we think the risk will outweigh opportunities. So on the European market, I think it will be below fiscal 2021. And those are the rough outlooks or forecasts for the major markets.

But -- that is for now, but the situation in COVID-19 and the Ukrainian situation will change rapidly day-to-day. So if the assumption in the general market changes, that means achievement in the standard.

So we will have to make changes to our business, so that we can see improvements in profit structure and delivery to our customers. And towards that end, we will continue to make efforts on a day-to-day basis. That is all from my side.

[Interpreted] 3 million units production in Japan. That was the second question, I believe. And this is Yamamoto speaking. This is something I heard from another person. After the Great East Japan earthquake, in Tohoku, we set up the factory and we set up a foundation for industry, including employment. And as a result to the Japanese auto industry, which has to purchase materials from outside of Japan, and has to earn foreign currencies from outside of Japan, we have been able to make a contribution.

In Japan -- we are a global company, but Japan is our home country. And we think people are supporting us in our efforts that we are doing in this country. And that's what the 3 million units means to TMC.

[Interpreted] Let us move on to the next question from NHK, (inaudible) please.

[Interpreted] (inaudible) of NHK. Can you hear me?

[Interpreted] Yes. I can.

[Interpreted] I also have 2 questions to ask. Question #1, that relates to Ukraine and Russian situation. In relation to that your business is Russia, how are you going to do with your Russian business? Currently, you suspended your operation because of the confusion in logistics. But Russian business, the outlook remains very uncertain, very difficult to read what's going to happen in the future. What's the current status? And what are you going to do with your business in Russia?

The second question, as I mentioned in the first question, with respect to the passing the higher cost prices. In this meeting, it was mentioned that there has been unprecedented raw materials cost increase, exceeding JPY 1 trillion. And earlier, depending upon customers that you may be able to receive a higher amount of consideration for the product you offer to the customers.

Am I right in understanding that, that includes Japanese market as well? How can you pass the higher cost prices in the Japanese market? I think it's a very difficult decision to make. So here in the Japanese market, where deflationary trend still continues. How are you going to absorb the impact of the higher raw materials prices in the Japanese market?

[Interpreted] Thank you, Mr. (inaudible) The first question related to the current situation in Ukraine, and what Toyota is going to do with Toyota's business in Russia. And I will respond to that question, Nagata speaking. And with respect to price, I answered the earlier question on the same line. In a very difficult deflationary trend, what we are going to do with the pricing level, was the question. So let me just respond to both of these questions.

With respect to Toyota's business in Russia. Since february 24, and I'm sure you still remember the very vividly in terms of the visual impact of that. The Russian made invasion into Ukraine and starting from that, many precious lives have been lost due to that. And in addition to that safe livelihoods are being threatened and especially in Europe, and of course, Japan was no exception, but energy and food are becoming scarce. So that's the reality that we are confronted with.

And many people throughout the world together with them, we in Toyota are indeed heartbroken and seriously [worried]. We, at Toyota, believe that happiness is never born from aggression and a war caused by aggression. We sincerely hope that peace and security be restored to Ukraine and the world as soon as possible. That's an ardent desire.

And furthermore, Toyota has customers who own approximately 100 million vehicles worldwide. And in addition to that, there are many stakeholders who support Toyota throughout the world, numerous stakeholders. And with respect to our business in Russia, we'll try to keep our approach of gaining the understanding and empathy of our many stakeholders and people including Russia as well. And what we will be able to do is something that we will consider to -- we will continue to consider and wrap our brains to. So that's all with respect to Russian issue.

With respect the prices here in Japan, which might reflect the higher cost, depending upon the conditions of a region or depending upon the people who use vehicles as an essential means for business. And in some cases, it may be easier to (inaudible) in cost and others not so. As Mr. (inaudible), here in Japan, the business confidence is very low. The business sentiment remains very stagnant, and also the disposable income of people but is very difficult and slow to increase. So in that general context, are we going to raise price or not. As mentioned earlier, within Japan and the Japanese context. In the case of vehicles, especially mini vehicles or compact vehicles, use vehicles for as an essential means of their business, the raised prices charge to those people, I think it's very difficult to do. But having said that, depending upon vehicles in different forms, there are certain vehicles on which we can charge higher prices.

So in that sense, by looking at each model one by one, and we are now starting in a very detailed fine-tune manner of what would be the best approach that we can take. I hope you will understand what we have in mind in that. So in -- how Japanese customers using vehicles for their -- in this current environment, we are making efforts so that customers will be satisfied and be happy being able to buy our cars in this very difficult environment. And that's how, I believe, you understand our approach.

[Interpreted] Now let us move on to the next question. From Wall Street Journal, Mr. Sean, please.

Sean McLain from the Wall Street Journal. Can you hear me okay?

[Interpreted] We hear you.

So I have a question about rising prices as well. And I'd like to add, particularly about the U.S. market because I think it's a big source of your profits where around record highs in transaction values in the U.S. around $46,000. And what I'm wondering is Toyota at all concerned about affordability of its products, particularly in the U.S., where maybe the average person can no longer afford a new car, and what Toyota is thinking about, if anything, doing about that?

And the second question is about hybrid sales. I noticed your electrified vehicle sales have started to increase. And while I understand that, that might partly be influenced by the sort of model mix you have in the country, given production shortages. Where do you see hybrid sales going in the next year or 2? Do you think there's a lot of room to grow hybrids around the world, but particularly in the U.S.?

[Interpreted] Thank you very much, Mr. Sean. The first question was about the prices in the U.S. market. For Toyota customers, are we concerned about it being too high for Toyota customers, and that will be answered by Mr. Kon, EVP. The second question was that over the 1 or 2 years, do we see hybrid vehicle sales to grow globally? And if it is to grow, in which areas will that grow? And that will be answered by EVP, Mr. Maeda. Starting with Mr. Kon please.

[Interpreted] So I will answer your first question. About prices in North America. As Mr. Sean mentioned, it's not just for Toyota, but for North America, overall, prices are going up. As a manufacturer, what we can do is to provide various options to customers. That is what we believe. As we mentioned before, on a global basis, we have a wide lineup -- product lineup.

In the United States, you have SUVs pickup trucks are the main lines of products. But we also have Sedans, Hatchbacks, the compact cars are also part of our lineup. And these are important products that we are offering to our customers. And we will continue to provide a wide variety of product lineup to our customers.

And in addition to that, rather than just selling new vehicles to the customers, we also offer leasing options, like full service lease in Japan, we have Kinto, and also recently globally, we also have Kinto. So how to supply vehicles is also something we are having a wider idea or a wide broad lineup on.

And when we listen to what the dealers are saying, in the past, incentives or price negotiations took place frequently. But recently, partly because inventory is low, which vehicle is in which pipeline, and which vehicle comes with which options, and what advantages those vehicles provide to the customer, these kinds of conversations take place at dealers and focusing on the product.

And I think this is very good. And for the customer, more options for models, more options on how to purchase vehicles. We will provide these various options, and have the customer choose. So that is all for the first point.

[Interpreted] And let me answer the second question. So in the future, including the United States in 1 or 2 years, will hybrid sales go up, I think that was the question. If you look back, in the United States, when fuel prices go up, hybrid vehicle sales are tended to go up in the past. So taking that history into consideration. Currently, we are seeing soaring crude oil prices, and not only in the United States, but globally, at least I think we can expect an increased trend of hybrid vehicle sales globally.

So there is another factor behind hybrid vehicle sales going up in the United States. The latest product RAV4. In the past, hybrid vehicles tended to focus on fuel economy. But the U.S. customers, not only focus on fuel economy, but also they focus on driving comfort, including good acceleration. So the new RAV4 has strengthened that characteristic. And the RAV4 for hybrid that is currently on the market. And the plug-in hybrids are also very favorably accepted by our customers. So that is the voice we hear from the market.

Alongside the best-in-town activities, we will listen to the customers' voice in the United States to strengthen our product. We do think the market will grow. And taking into consideration the environmental issue, I think we should grow sales of hybrid.

[Interpreted] Scheduled concluding time is approaching. And therefore, I would like to ask the final question. Mr. (inaudible).

[Interpreted] I have 2 questions as well, if I may. My first question. This is somewhat redundant from the previous questions, but what is your view of the BEV, B-E-V? In one of the pages, you talked about the outlook of sales, the increase of 593%, close 600% increase in BEV sales.

And in the past, when you had discussion with battery electric vehicles, many customers buy BEVs as the second car not the first primary car. But in terms of the recent situation and also considering the prevailing situations, they are (inaudible) Forex including those, what is your view of the demand for EVs compared to BEV? That's the first question.

Secondly, in the earlier response to the question, with respect to the change in the earnings structure after the global financial crisis. And in a sense, you described what has been done thus far which resulted in the current situation in terms of operating structure.

So in that general context, for the current fiscal year, starting from the 1st of April, you reestablished thw introduced Executive Vice President. You have been trying to reduce the number of Directors or Executives, and try to accelerate the decision-making speed. That's what we've been thinking about.

So what is the objective of restoring the position of Executive Vice President? What is the view? And how do this management is going to evolve and transform going forward, especially starting in the current fiscal year? Those are my 2 questions.

[Interpreted] Thank you, (inaudible) The first question relates to the market of battery EV, what sort of change is foreseen? And Maeda, EVP will respond to the question. The second question related to the new executive lineup, which restored the position of the Executive Vice President. And so what is the objective of that in the current fiscal year? And what sort of change or transformation in the management structure is considered, was the second question. Kon will respond to that as Executive Vice President. Mr. Maeda, please?

[Interpreted] Thank you, Mr. (inaudible) for your question. In terms of the market trend of battery EV, that was a question according to my understanding. What I feel most, and most important is that vis-a-vis the battery electric vehicles, the development in relation to that has been accelerating the market. That relates to the fact that there is a broader product lineup in various OEMs. And also there are a greater number of options available in battery EVs, that's one aspect.

And also in the United States, there has been tightening trend for regulations that cannot be disregarded. Globally speaking such a very tough and rigorous regulation established was done, for the first in the United States, the United States is leading in that trend. And not just Toyota but for other OEMs in the automotive industry, that is one factor accelerating various efforts by OEMs. This is a core greenhouse gas regulation. So those regulations and also the market trend has been strengthening, more than we had expected in the past.

As far as Toyota is -- and you talked about RC and bZ, it's we are yet to start receiving orders. But looking at the input in the market and general discussion in the market on those, there seems to be a heightened expectations for those models. And therefore, looking at the input or reaction of customers in the market and also different reactions of different regions of the global or worldwide, and those regulatory trends and therefore, the battery electric vehicles will get accelerated.

I think there are greater factors that lead us to think in that way, but at the same time, there are concerning factors as well as was mentioned in the presentation. Soaring market material prices tend to become more manifest and more seriously in the case of the BEVs. As I've mentioned in the presentation, the higher cost of materials of battery does have a huge impact in the overall cost structure.

We talked about the possibility of reflecting cost and prices, but we have to take a good balance. And also in different regions, different sort of subsidies maybe considered for those vehicles. And therefore, currently, [they] tend to be more generous for those environmental vehicles, but customers are very sensitive to those development.

So we tend to take a very conservative approach in responding to that. So that's my response to your first question.

[Interpreted] Thank you. With respect to your second question. In terms of the current executive lineup was the focus of your question. Since the global financial crisis, the lineup of executive officers and the system of our senior advisers to the Board, which was eliminated and also with respect to the members of the Board, we have a (inaudible) in the past. But currently, internally, TMC only 6, including the outside Board members, including them, 9. So the Board has been downsized substantially and that's not the only change.

For the purpose of sharing the information using IT tools used for meetings and CEOs scattered throughout the world and Toyota located in Japan, including them. We have weekly meetings so that information can be shared thoroughly and quite swiftly.

So [13] years ago, this is something unthinkable and unmeasurable. And this sort of change has been actually implemented and achieved.

Starting in April of this year, you talked about the position of Executive Vice President to be restored. And I think there are very significant impacts. Looking at myself, and what I personally consider is that as Toyoda as President says, often we live in the world where there is no right answer known to all of us. And in that world full of uncertainty, how can we manage and steer Toyota going forward?

As far as TMC is concerned, if we can discover a problem, TMC does have an ability to find solutions to those problems, which was demonstrated in the past. I think Toyota is a company that has ability to find solution to various challenges or problems that will be faced with diversifying society, characterized by a variety of a problem. Nobody knows what's going to happen going forward. So in that general context, our ability to find and discover problem becomes very important.

In the past, Toyoda as our President, was the only person trying to find and discover problems in many cases. But with the 3 Executive Vice Presidents working together with our President, are trying to discover the problems in the world in which there is no right answer as we'll try to take and the measures because there is no right answer. No, we may not be able to find the right solution right away. But by disovering those problems, we'll just implement the various potential countermeasures. And that I think is what we're aiming at. So with that aim in mind, we'll pursue the world going forward, and I hope you will continue to support us as we make those efforts going forward. That's all from me.

[Interpreted] With this, we complete the financial results press briefing. Thank you very much for listening despite your busy schedules today. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]